___________________________________________________________________________
1.
Both ch07
Student: the width (or range) of the tax brackets (the amount of income taxed at a particular rate) in the tax
rate schedules and the range of the tax rates in the tax rate schedules (the difference between the lowest
tax rate and the highest tax rate) vary by filing status.
True False
2.
The tax rate schedules are set up to tax lower levels of income at higher tax rates than higher levels of
income.
True False
3.
Tax rate schedules are provided for use by (relatively) higher income taxpayers while the tax tables are
provided for use by (relatively) lower income taxpayers.
True False
4.
If a married couple has one primary breadwinner, filing a joint return will likely result in a marriage
penalty.
True False
5.
If both spouses of a married couple earn roughly equivalent wages, the couple is likely to pay a marriage
penalty due to the nature of the tax rate schedules.
True False
6.
A marriage penalty occurs when a couple pays more taxes by filing a joint tax return than they would
have paid had they filed married filing separate returns.
True False
7.
All capital gains are taxed at preferential rates.
True False
8.
Long-term capital gains, dividends, and taxable interest income are all taxed at preferential rates.
True False
9.
In certain circumstances a child with very little income may have their income taxed at the parents'
marginal tax rate.
True False
10. The kiddie tax does not apply to children over 24 years old at the end of the tax year.
True False
11. The alternative minimum tax system requires taxpayers to apply an alternative tax rate on the regular
income tax base to determine the amount of the alternative minimum tax.
True False
12. Regular taxable income is the starting point for determining the alternative minimum tax.
True False
13. The alternative minimum tax is the AMT base multiplied by the AMT rate.
True False
14. Long-term capital gains are taxed at the stated AMT rate for purposes of the alternative minimum tax.
True False
15. Taxpayers are not allowed to deduct personal or dependency exemptions for alternative minimum tax
purposes.
True False
16. For alternative minimum tax purposes, taxpayers are required to add back the regular tax standard
deduction amount for their filing status whether or not they itemized deductions for regular tax
purposes.
True False
17. For alternative minimum tax purposes, taxpayers are allowed to deduct state income taxes but are not
allowed to deduct charitable contributions.
True False
18. The AMT exemption amount is phased-out for high income taxpayers.
True False
19. All else equal, a reduction in regular income tax rates would require more taxpayers to pay the alternative
minimum tax.
True False
20. Due to the alternative minimum tax rate structure, timing tax planning strategies are not effective under
the alternative minimum tax system.
True False
21. Employees must pay both Social Security tax and Medicare tax on all of their wages no matter the
amount of their wages.
True False
22. For married couples, the Social Security wage base limitation applies separately to each spouse.
True False
23. Alton reported net income from his sole proprietorship of $90,000. To determine his self employment tax,
he would multiply $90,000 by the self-employment tax rate.
True False
24. Employee status is always better than independent contractor status for a taxpayer because the employee
is responsible for paying only half of the FICA taxes.
True False
25. Self-employed taxpayers are allowed to deduct the full amount of the self-employment taxes they
pay.
True False
26. Employees are not allowed to deduct FICA taxes they pay.
True False
27. Employees are allowed to deduct half of the FICA taxes they pay.
True False
28. Katlyn reported $300 of net income from her sole proprietorship. She is not required to pay selfemployment tax.
True False
29. All else equal, taxpayers are more likely to be classified as employees rather than independent contractors
if they are allowed to determine their own working hours and work without frequent oversight.
True False
30. Tax credits reduce a taxpayer's taxable income dollar for dollar.
True False
31. The child tax credit is subject to phase-out based on the taxpayer's AGI.
True False
32. Parents may claim a child tax credit for a dependent child who is 22 years of age at the end of the year if
the child is a full-time student.
True False
33. Parents may claim a child and dependent care credit for expenses incurred in providing for their
dependents while the parents work as long as the children are over age 14 and under age 20 at year
end.
True False
34. John and Sally pay Janet (Sally's older sister) to watch John and Sally's child Dexter during the day. Janet
cares for Dexter in her home. John and Sally may claim a child and dependent care credit based on the
amount they pay Janet to care for Dexter.
True False
35. The child and dependent care credit entitles qualifying taxpayers to a credit equal to the full amount of
qualified expenses.
True False
36. The American opportunity credit is available only for those students who are in their first or second year
of postsecondary education.
True False
37. The lifetime learning credit can be used toward the cost of any course of instruction to acquire or improve
a taxpayer's job skills, no matter the age of the taxpayer.
True False
38. The American opportunity credit and lifetime learning credit are available to all taxpayers regardless of
their income level.
True False
39. The earned income credit is sometimes referred to as a negative income tax.
True False
40. To qualify for the earned income credit, the taxpayer must have a qualified dependent.
True False
41. An 80-year-old taxpayer with earned income and no dependent children could qualify for the earned
income credit.
True False
42. Business credits are generally refundable credits.
True False
43. Taxpayers are generally allowed to carry back and/or carry forward unused business credits.
True False
44. When applying credits against a taxpayer's gross tax liability, nonrefundable personal credits are applied
first, then business credits, and finally refundable personal credits.
True False
45. An individual could pay 100% of her tax liability by the due date of her tax return and still be subject to
underpayment tax penalties.
True False
46. Depending on the year, the unextended due date for an individual's tax return may be after April 15.
True False
47. Depending on the year, the unextended due date for an individual's tax return may be before April 15.
True False
48. Individuals may file for and receive a six-month extension of time to file their tax return and pay their
taxes without penalty.
True False
49. The late payment penalty is based on the amount of tax owed and the number of days that the tax is not
paid. The maximum amount of the penalty is unlimited.
True False
50. Which of the following is not a taxpayer filing status for purposes of determining the appropriate tax rate
schedule?
A. Head of Household
B. Qualifying Widow or Widower
C. Married Filing Separately
D. Single
E. All of the above are taxpayer filing statuses
51. The taxable income levels in the married filing jointly tax rate schedule are _______ those in the married
filing separately schedule.
A. the same as
B. double
C. half the amount of
D. none of the above
52. Linda is a qualifying widow in 2011. In 2011, she reported $75,000 of taxable income (all ordinary).
What is her gross tax liability using the tax rate schedules?
A. $11,000
B. $15,035
C. $14,875
D. $13,518
53. Miley, a single taxpayer, plans on reporting $25,500 of taxable income this year (all of her income is
from a part-time job). She is considering applying for a second part-time job that would give her an
additional $10,000 of taxable income. By how much will the income from the second job increase her tax
liability (use the tax rate schedules)?
A. $1,000
B. $1,500
C. $1,600
D. $2,500
54. Tamra and Jacob are married and they file a joint tax return. Tamra received nearly three times the salary
that Jacob received. Which of the following statements is true?
A. Tamra and Jacob likely pay no tax marriage penalty nor receive a tax marriage benefit.
B. Tamra and Jacob likely pay a tax marriage penalty.
C. Tamra and Jacob likely receive a tax marriage benefit.
D. Tamra and Jacob likely will pay a tax marriage penalty and receive a tax marriage benefit.
55. Stephanie and Mitch are married and they file a joint tax return. Mitch received a slightly higher salary
than Stephanie did during the year. Which of the following statements is true?
A. Stephanie and Mitch likely pay no tax marriage penalty nor receive a tax marriage benefit.
B. Stephanie and Mitch likely pay a tax marriage penalty.
C. Stephanie and Mitch likely receive a tax marriage benefit.
D. Stephanie and Mitch likely will pay a tax marriage penalty and receive a tax marriage benefit.
56. Harrison received a qualified dividend. Without knowing any additional facts, which of the following
statements is true regarding the rate at which the dividend will be taxed to Harrison?
A. The dividend will be taxed at a 15% tax rate.
B. The dividend will be taxed at a 0% tax rate.
C The entire dividend will be taxed at either 0% or the entire dividend will be taxed at 15% depending on
. Harrison's marginal ordinary income tax rate.
D. None of the above.
57. Jamie is single. In 2011, she reported $100,000 of taxable income, including a long-term capital gain of
$5,000. What is her gross tax liability (use the tax rate schedules)?
A. $23,117
B. $21,617
C. $20,967
D. $15,000
58. Angelena files as a head of household. In 2011, she reported $50,000 of taxable income, including a
$10,000 qualified dividend. What is her gross tax liability, rounded to the nearest whole dollar amount
(use the tax rate schedules)?
A. $5,393
B. $5,955
C. $7,500
D. $7,268
59. Which of the following is not a barrier to income shifting among family members?
A. The assignment of income doctrine
B. Net unearned income for children 18 and younger taxed at parents' marginal tax rates
C. Elimination of preferential tax rates (on dividends and long-term capital gains) for dependents
D. Two of the above
60. The Olympians have three children. The kiddie tax applies to unearned income received by which of the
following children?
A. Poseidon is a 20-year-old full-time student who does not support himself
B. Demeter, a 23-year-old full-time student who supports herself with a job at a grocery store
C. Zeus is 20 years old and not a student
D. Two of the above.
E. None of the above.
61. Assuming the kiddie tax applies, what amount of a child's income is subject to the kiddie tax?
A. All of it
B. All of the unearned income
C. The net unearned income
D. Taxable income less the standard deduction
62. During 2011, Montoya (age 15) received $2,200 from a corporate bond. He also received $600 from
a savings account established for him by his parents. Montoya lives with his parents and he is their
dependent. What is Montoya's taxable income?
A. $0
B. $2,200
C. $2,800
D. $1,850
63. During 2011, Jasmine (age 12) received $2,400 from a corporate bond. She also received $600 from
a savings account established for her by her parents. Jasmine lives with her parents and she is their
dependent. Assuming her parents' marginal tax rate is 28%, what is Jasmine's gross tax liability?
A. $0
B. $95
C. $308
D. $403
64. Hestia (age 17) is claimed as a dependent by her parents, Rhea and Chronus. In 2011, Hestia received
$1,000 of interest income from a bond that she owns. In addition, she has earned income of $200. What is
her taxable income for 2010?
A. $0
B. $250
C. $700
D. $1,200
65. Montague (age 15) is claimed as a dependent by his parents Matt and Mary. In 2011, Montague received
$5,000 of qualified dividends and he received $800 from a part time job. What is his taxable income for
2010?
A. $100
B. $3,900
C. $4,700
D. $4,850
66. Hester (age 17) is claimed as a dependent by his parents, Charlton and Abigail. In 2011, Hester received
$10,000 of qualified dividends and he received $6,000 from a part time job. What is his taxable income
for 2011?
A. $16,000
B. $15,050
C. $10,200
D. $9,700
67. The alternative minimum tax base is typically ______ the regular income tax base.
A. smaller than
B. about the same as
C. larger than
D. exactly the same as
68. The computation of the alternative minimum tax base begins with regular taxable income. Which of the
following is not part of the formula for computing the alternative minimum tax base?
A. Subtract personal exemptions.
B. Add the standard deduction amount if used for regular tax.
C. Subtract the AMT exemption amount (if any).
D. Add back tax exempt interest from a private activity bond not issued in 2009 or 2010.
69. In 2011, Maia (who files as a head of household) reported regular taxable income of $115,000. She
itemized her deductions, deducting $5,000 in charitable contributions and $3,000 in state income taxes.
She claimed exemptions for herself and her son, Hermes, ($3,700 each). What is Maia's alternative
minimum taxable income?
A. $118,000
B. $115,000
C. $118,700
D. $125,400
70. Which of the following items is not added back to regular taxable income in computing alternative
minimum taxable income?
A. Home mortgage interest expense.
B. Real property taxes.
C. Tax exempt interest from a private activity bond issued in 2007.
D. Miscellaneous itemized deductions in excess of the 2% floor.
71. Which of the following statements regarding the AMT exemption amounts is not true?
A. The amount of the exemption depends on the taxpayer's filing status.
B. The exemption amount is completely phased-out for high income taxpayers.
C. Taxpayers must choose whether they will claim the exemption or itemize deductions.
D. None of the above statements is false (all of the above statements are true).
72. Persephone has a regular tax liability of $12,475 and a tentative minimum tax of $11,500. Given just this
information, what is her alternative minimum tax liability for the year?
A. $0
B. $11,500
C. $975
D. $12,475
73. Harmony reports a regular tax liability of $15,000 and tentative minimum tax of $17,000. Given just this
information, what is her alternative minimum tax liability for the year?
A. $0
B. $2,000
C. $15,000
D. $17,000
74. Which of the following statements accurately describes the alternative minimum tax rate(s)?
A. The top AMT marginal rate is higher than the top regular tax marginal tax rate.
B. The AMT rates represent a progressive tax rate structure.
C. The AMT rate is the same rate for all taxpayers.
D. None of the above.
75. Which of the following is not typical of taxpayers who are most likely affected by the AMT?
A. Have many dependents
B. Pay high state income tax
C. Pay high property taxes
D. Have relatively low capital gains
76. Which of the following could explain why an increasing number of taxpayers are subject to (or could
become subject to) AMT?
A. Decreasing regular tax rates
B. The AMT exemption amount is indexed to increase with inflation
C. Property values are decreasing
D. The personal and dependency exemption amounts are not increasing as fast as the AMT exemption is
decreasing
77. Asteria earned a $25,500 salary as an employee in 2011. How much should her employer have withheld
from her paycheck for FICA taxes (rounded to the nearest whole dollar amount)?
A. $370
B. $1,071
C. $1,441
D. $3,392
78. Baker earned $110,000 of salary as an employee in 2011. How much should his employer have withheld
from his paycheck for FICA taxes (rounded to the nearest whole dollar amount)?
A. $1,595
B. $8,170
C. $6,081
D. $6,215
79. Hera had FICA taxes withheld on the $108,000 salary she received as an employee in 2011. Her husband,
Zeus, made $70,000 as an employee at a Greek Gyro stand. How much must Zeus have withheld for
FICA taxes for 2011, assuming he files a joint return with Hera?
A. $0
B. $1,015
C. $5,355
D. $3,955
80. Which of the following statements regarding FICA taxes is true?
A. Low income employees are not required to pay FICA taxes.
B. An employee who has two different employers during the year may be entitled to a tax credit for
overpaid FICA taxes.
C The maximum amount of Medicare taxes an employee is required to pay is capped each year but the
. maximum amount of Social Security taxes is not.
D. The wage base limit for FICA taxes depends on the taxpayer's filing status.
81. Which of the following suggests that a working taxpayer is an independent contractor rather than an
employee?
A. Works for more than one firm
B. May realize a loss from business activities
C. Sets own working hours
D. Works somewhere other than on employer premises
E. All of the above suggest independent contractor status
82. Which of the following statements best describes the deductions independent contractors may claim for
valid business expenses?
A. for AGI deductions
B. from AGI deductions not subject to the two percent of AGI floor
C. from AGI deductions subject to a two percent of AGI floor
D. for AGI deductions limited to income from the business activities
83. The wage base for which of the following taxes is capped?
A. Federal income
B. Social Security
C. Medicare
D. Alternative minimum
84. Which of the following statements regarding the self-employment tax is most accurate?
A The self-employment tax base is generally the taxpayer's net income from self-employment (usually
. net income from Schedule C).
B Taxpayers who report less than $600 of net income from self-employment (usually net income from
. Schedule C) are not required to pay self employment taxes.
C. The self-employment tax base is net earnings from self employment which is less than net income from
self-employment.
D. The Social Security tax limit does not apply to self-employment taxes.
85. Which of the following best describes the manner in which self-employed taxpayers may deduct selfemployment taxes?
A. Deduct one-half from AGI.
B. Deduct entire amount from AGI.
C. Deduct one-half for AGI.
D. Deduct entire amount for AGI.
E. No deduction.
86. For taxpayers who receive both salary as an employee and self-employment income as an independent
contractor in the same year, which of the following statements regarding FICA and self-employment
taxes is most accurate?
A. The Social Security limit applies to the salary but not to the self- employment income.
B. The Social Security limit applies to the self-employment income but not to the salary.
C.Salary is first applied against the Social Security limit and then self-employment income is applied
against the Social Security limit.
D Self-employment income is first applied against the Social Security limit and then salary is applied
. against the Social Security limit.
87. Which of the following statements concerning differences between employees and independent
contractors is most accurate?
A. Employees and independent contractors deduct business expenses as miscellaneous itemized
deductions.
B. While employees are typically eligible for nontaxable fringe benefits from employers, independent
contractors are not.
C Employers are required to withhold either FICA or self employment taxes from compensation paid to
. employees and compensation paid to independent contractors.
D. Employers typically withhold federal income taxes from compensation paid to employees and to
independent contractors.
88. Which of the following statements concerning tax credits is true?
A. The tax benefit a taxpayer receives from a credit depends on the taxpayer's marginal tax rate.
B. Refundable tax credits are limited to a taxpayer's gross tax liability.
C. Tax credits are generally more beneficial than tax deductions.
D. None of the above is a true statement.
89. Which of the following is not one of the general tax credit categories?
A. Nonrefundable personal
B. Refundable personal
C. Business
D. Refundable business
90. Which of the following statements regarding the child tax credit is false?
A. The child for whom the credit is claimed must be under the age of 15 at the end of the year.
B. The credit is subject to phase-out based on the taxpayer's AGI.
C. The full credit for a child who qualifies is $1,000.
D. The child for whom the credit is claimed must meet the definition of a qualifying child.
91. Quantitatively, what is the relationship between the AGI phase-out thresholds for the child tax credit?
A. Head of household/Single = Married Filing Separately = Married Filing Jointly
B. Head of household/Single < Married Filing Separately < Married Filing Jointly
C. Head of household/Single = Married Filing Separately > Married Filing Jointly
D. Head of household/Single > Married Filing Separately < Married Filing Jointly
92. Rhianna and Jay are married filing jointly in 2011. They have six children for whom they may claim the
child tax credit. Their AGI was $123,440. What amount of child tax credit may they claim on their 2011
tax return?
A. $5,300
B. $6,000
C. $12,000
D. $4,000
93. The amount of expenditures eligible for the child and dependent care credit is the least of three amounts.
Which of the following is not one of those amounts?
A. The total amount of child and dependent care expenditures for the year
B. $3,000 for one qualifying person or $6,000 for two or more qualifying persons
C. The dependent's earned income for the year
D. The taxpayer's earned income for the year
94. Which of the following statements regarding the child and dependent care credit is false?
A. Taxpayers may claim a credit for only a portion of qualifying dependent care expenditures.
B. If a taxpayer's income is too high, she will be ineligible to claim any child and dependent care credit.
C. A single taxpayer must have earned income to claim any child and dependent care credit.
D. A taxpayer is not eligible to claim the dependent care credit if any dependent relative provides the
care.
95. Trudy is Jocelyn's friend. Trudy looks after Jocelyn's four-year-old son during the day so Jocelyn can go
to work. During the year, Jocelyn paid Trudy $4,000 to care for her son. What is the amount of Jocelyn's
child and dependent care credit if her AGI for the year was $30,000?
A. $0
B. $810
C. $1,080
D. $3,000
96. Kaelyn's mother, Judy, looks after Kaelyn's four-year-old twins so Kaelyn can go to work (she drops off
and picks up the twins from Judy's home everyday). Since Judy is a relative, Kaelyn made sure, for tax
purposes, to pay her mother the going rate for child care ($6,300 for the year). What is the amount of
Kaelyn's child and dependent care credit if her AGI for the year was $36,000?
A. $1,440
B. $2,100
C. $6,000
D. $0
97. Which of the following statements regarding the child and dependent care credit is true?
A. A married couple must file jointly to claim the credit.
BA taxpayer may claim a credit for dependent care expenses for a dependent who is 14 years old or older
. but only if the dependent lives in the taxpayer's home for the entire year.
CAll else equal, a taxpayer making qualifying expenditures for three children may claim more dependent
. care credit than a taxpayer making (the same amount of) qualifying expenditures for two children.
D. of None the above statements is true.
98. Which of the following is not true of the American opportunity credit?
A. A taxpayer with multiple eligible dependents can claim a credit for each dependent's qualifying
expenses
B. The credit is available for students during their first four years of postsecondary education only
C. It is phased out based on the taxpayer's AGI
D. A taxpayer may not claim a credit unless the taxpayer pays a dependent's qualifying educational
expenses
99. Which of the following is not true of the lifetime learning credit?
A. It is a nonrefundable credit.
B The credit can be claimed by taxpayers who have graduated from college and are taking professional
. training courses to improve their job skills.
C. A taxpayer with multiple dependents can claim a credit for each dependent's qualifying expenses.
D. The credit is subject to phase out based on the taxpayer's AGI.
100.Which of the following is not a true statement about the American opportunity credit (AOC) and lifetime
learning credits?
A. A taxpayer may not report both an AOC and a lifetime learning credit on the same tax return.
BCertain educational expenses qualify for both credits but taxpayers must claim one credit or the other
. for the expenditures (the taxpayer cannot claim both credits for the same expenditures).
CTaxpayers may choose to either (1) deduct qualifying education expenses of an individual as for AGI
. deductions or claim educational credits for the individual's expenses (but not both).
D.The AGI phase-out threshold for phasing out the AOC is higher than the AGI phase-out threshold for
the lifetime learning credit.
101.Which of the following statements regarding the earned income credit is true?
A. It is a nonrefundable credit
B. A taxpayer with more earned income may receive more credit than a taxpayer with less earned income
C. A 70-year-old taxpayer with no dependents can qualify for the credit in certain circumstances
D. A taxpayer whose only source of income is interest from corporate bonds is eligible for the credit
102.Which of the following does not affect the amount of the earned income credit?
A. Filing status
B. Amount of credit taken in previous years
C. Number of qualifying children
D. Taxpayer's AGI
103.Carolyn has an AGI of $38,000 (all from earned income), two qualifying children, and is filing as a head
of household. What amount of earned income credit is she entitled to?
A. $0
B. $624
C. $3,860
D. $4,488
E. $5,112
104.Which of the following statements regarding credits is correct?
A. Business expenses are generally refundable credits
B. Business credits that are generated in one year but are not utilized in that year expire
C Business credits that are generated in one year but are not utilized in that year may be carried forward
. to future years but not back to a prior year
D Business credits that are generated in one year but are not utilized in that year may be carried back to
. the previous year and then forward to future years
105.If there is not enough gross tax liability to use the foreign tax credit, __________.
A. it expires unused
B. it is carried back 2 years or forward 20 years
C. it is carried back 3 years or forward 5 years
D. it is carried back 1 year or forward 10 years
106.Which of the following tax credits is fully refundable?
A. American opportunity credit
B. Dependent care credit
C. Earned income credit
D. None of the above
107.How could an individual obtain a business tax credit?
A. Through self-employment activities
B. Through flow-through from a partnership or S corporation
C. By working overseas and obtaining a foreign tax credit
D. All of the above
108.Which of the following represents the correct order in which credits are applied to gross tax liability
(from first to last)?
A. Nonrefundable personal, business, refundable
B. Business, nonrefundable personal, refundable
C. Refundable, nonrefundable personal, business
D. Refundable, business, nonrefundable personal
109.Cassy reports a gross tax liability of $1,000. She also claims $400 of nonrefundable personal credits,
$700 of refundable personal credits, and $200 of business credits. What is Cassy's tax refund or tax
liability due after applying the credits?
A. $1,000 taxes payable
B. $0 refund or taxes payable
C. $700 refund
D. $300 refund
110.Sheryl's AGI is $200,000. Her current tax liability is $52,068. Last year, her tax liability was $48,722.
She will not owe underpayment penalties if her total estimated tax payments are at least which of the
following (rounded) amounts (assume she makes the required payments each quarter)?
A. $46,861
B. $48,722
C. $51,547
D. $53,594
111.If an employer withholds taxes from an employee, in general, when are these taxes treated as paid to the
IRS?
A. As withheld
B. As the employee requests on his/her W-4 form
C. Evenly throughout the year
D. On April 15
112.Which of the following statements about estimated tax payments and underpayment penalties is true for
individual taxpayers?
A. Taxpayers who have paid their full tax liability by the original tax return due date are protected from
underpayment penalties.
B. Taxpayers who have paid their full tax liability by the extended tax return due date are protected from
underpayment penalties.
C Taxpayers who have uneven income streams can pay estimated tax quarterly in uneven amounts and
. not be susceptible to underpayment penalties.
D Taxpayers who have paid their required amount of estimated tax, even though not on time, are
. protected from underpayment penalties.
113.Which of the following statement(s) concerning estimated tax payments and underpayment penalties for
individuals is (are) true?
A. Whether taxpayers are subject to underpayment penalties is determined on a quarterly basis.
BDue dates for estimated tax payments for a given year are April 15, June 15, September 15 of that year
. and January 15 of the next year unless these dates fall on a weekend or a holiday.
C. The amount of penalty depends on the amount of the underpayment among other factors.
D. All of the above statements are true.
114.What happens if the taxpayer owes an underpayment penalty, but does not compute it on Form 2210?
A. Nothing, unless the taxpayer is audited
B. The taxpayer is immediately sent to the Tax Court
C. The IRS will compute and assess the penalty
D. The penalty is increased by five percentage points
115.Happy, Sleepy, Grumpy, and Doc all did not make adequate estimated payments. Which of them will not
owe underpayment penalties for 2011 given the following information?
A. Happy
B. Sleepy
C. Grumpy
D. Doc
E. Two of the above
F. None of the above
116.Taxpayers are not required to file a tax return unless their gross income passes a certain threshold. This
threshold is generally the ________.
A. applicable standard deduction amount
B. personal exemption amount
C. twice the applicable standard deduction amount
D. applicable standard deduction amount plus the personal exemption amount
117.Why would a taxpayer file a tax return if not required to do so?
A. to remain in favor with the IRS
B. to claim a refund of taxes paid
C. all taxpayers are required to file returns
D. in order to claim the standard deduction
118.Looking at the following partial calendar for April, when will individual tax returns be due?
A. Friday, April 14
B. Saturday, April 15
C. Sunday, April 16
D. Monday, April 17
E. Tuesday, April 18
119.Which of the following is not true of the extension to file an individual tax return?
A. It is granted automatically by the IRS if requested
B. It must be requested by the original due date of the return
C. It extends the due date for the return and associated tax payments beyond the original due date of the
tax return
D. The extension is for six months beyond the original due date
120.Which of the following taxpayers (all age 40) are required to file a return?
A.
B.
C.
D.
Jenny and Jim
Allen
Timmy
None of the above
121.What is the underpayment penalty rate that taxpayers pay when they underpay their estimated taxes?
A. Federal short-term interest rate.
B. Federal short-term interest rate plus three percentage points.
C. Federal long-term interest rate.
D. Zero. The government does not pay interest on overpayments.
122.Which of the following statements regarding late filing penalties is true?
A. If a taxpayer fails to file a tax return, the late filing penalty will continue to grow until the taxpayer
files the tax return.
B. The amount of the late filing penalty is the same for both fraudulent failure to file and non fraudulent
failure to file.
C. Taxpayers who owe no tax as of the due date of their tax returns are not subject to late filing penalties
even if they file late.
D. None of the above.
123.Which of the following statements regarding late filing penalties and/or late payment penalties is true?
A An extension of time to file the tax return protects a taxpayer from late payment penalties as long as the
. tax is paid by the extended due date of the return.
B. The penalty rate for late filing penalties is less than the penalty rate for late payment penalties.
CIf a taxpayer has not paid the full tax liability by the original due date of the return and the taxpayer has
. not filed a tax return by the due date of the return, the maximum late filing and late payment penalty will
be no greater than the late filing penalty by itself.
D. None of the above
124.Jocelyn, a single taxpayer, had $742,000 of taxable income in 2011. All of the income is ordinary. What
is her tax liability for the year?
125.Paul and Melissa plan on filing jointly in 2011. For the year, the couple reported taxable income of
$130,000. What is their gross tax liability?
126.Maria and Tony are married. They are preparing to file their 2011 tax return. If they were to file as single
taxpayers, Maria and Tony would report $40,000 and $60,000 of taxable income, respectively. On their
joint tax return, their taxable income is $100,000. How much of a marriage penalty or benefit will Maria
and Tony experience in 2011?
127.Maria and Tony are married. They are preparing to file their 2011 tax return. If they were to file as single
taxpayers, Maria and Tony would report $10,000 and $70,000 of taxable income, respectively. On their
joint tax return, their taxable income is $80,000. How much of a marriage penalty or benefit will Maria
and Tony experience in 2011?
128.In 2011, Athena reported $35,000 of taxable income. Of this, $30,000 came from her work at the local
library and the remaining $5,000 was from capital gains to be taxed at preferential rates. Compute her tax
liability for 2011 as a single taxpayer.
129.Hera wants to reduce her income tax liability by shifting some of her income to her 10-year-old daughter
(a dependent), Athena. Last year, Hera gifted corporate bonds to Athena. This year, Athena received
$1,500 in interest income from the bonds. What amount of tax will Athena pay on the interest income?
130.Max is a 14-year-old dependent of his parents. During 2011, Max earned $1,800 working part time jobs
and he received $1,500 of interest income from corporate bonds that were given to him last year. What is
Max's 2011 taxable income?
131.Pyrrha, a 12-year-old dependent of Epimetheus and Pandora, received $2,000 of interest income in 2011.
Her parents' marginal tax rate is 35%. What is Pyrrha's gross tax liability for the year?
132.Candace is claimed as a dependent on her parent's tax return. Her parents' ordinary income marginal tax
rate is 33%. In 2011, Candace received $5,000 of interest income from corporate bonds she obtained
several years ago. This is her only source of income. She is 15 years old at year end. What is her gross tax
liability?
133.Jerusha is married and she files a separate tax return in 2011. She claims two exemptions (2 x 3,700
= $7,400). She claimed the standard deduction for regular tax purposes ($5,800). She had no other
adjustments. Her regular taxable income was $68,000. What is Jerusha's AMTI?
134.Apollo is single and his AMT base is $100,250. This amount includes $500 of qualified dividends (the
dividends were taxed at 15% in determining the regular tax liability). What is Apollo's tentative minimum
tax?
135.Costa is a single taxpayer. His regular tax liability was $38,000. For 2011, he reported $190,000 of
alternative minimum taxable income. What is alternative minimum tax?
136.Selene made $54,300 in 2011 working at the local burger joint, Moon Caf. How much should her
employer withhold from her paycheck for FICA taxes if the calculation is made correctly?
137.Jackson earned a salary of $124,000 in 2011. What amount of FICA taxes should Jackson's employer
withhold from his paycheck?
138.Harmony was self-employed for the first half of 2011, earning $18,000 of Schedule C (business) net
income. During the second half of the year, she began working as an employee and earned $38,000 in
salary. What amount of self-employment taxes is Harmony required to pay?
139.Lexa worked as an employee during the first half of the year earning $65,000 of salary. In the second
half of the year, she was self-employed and she reported $120,000 of self-employment income on her
Schedule C. What amount of self-employment taxes is Lexa required to pay?
140.Atlas earned $17,300 from his sole proprietorship in 2011. This was his only source of income. How
much in self-employment taxes will Atlas be able to deduct?
141.Demeter is a single taxpayer. Her AGI in 2011 is $81,200. Demeter may claim a child tax credit for her
daughter Persephone. What amount of child tax credit is Demeter entitled to claim after any applicable
phase-out?
142.Jack paid $5,000 in daycare expenses for his five-year-old daughter so he could work. His AGI for the
year was $37,500 (all earned income). What is the amount of his child and dependent care credit?
143.Wolfina's twins, Romulus and Remus, finished their first year of school at an accredited university
in 2011. She paid $10,000 in qualified educational expenses for Romulus and $2,000 of qualifying
expenses for Remus. Wolfina is a head of household with an AGI of $85,000. What amount of American
opportunity credit may she claim?
144.Akiko and Hitachi (married filing jointly for 2011) are both educators. They attended a conference to
further their job-related skills. Tuition for the conference was $2,000 for each person. Their AGI was
$108,000. How much lifetime learning credit can they claim?
145.Julien and Sarah are married, file a joint return, and have two children, Kaya and Christopher. Kaya just
finished her third year at college and Christopher just finished his first year of graduate school (fifth year
of college). Tuition and books for the past year were $1,800 for Kaya and $5,000 for Christopher. How
much can Julien and Sarah claim in educational credits if their joint AGI was $114,000 for 2011?
146.Sam is 30 years old. In 2011, he reported an AGI of $12,000, all from his job as a server at the local caf.
He is single and has no dependents. What amount of earned income credit may he claim in 2011?
147.In 2011, John (52 years old) files as a head of household with one 18-year old dependent (qualifying)
child. John is eligible to claim a $700 American opportunity credit for the year. John did not have any
taxes withheld by his employer during the year and he did not make any estimated tax payments. After
taking credits into account, what is the amount of John's taxes payable or refund assuming that his AGI is
$26,000 (all from salary) and his taxable income is $10,350?
148.Clarissa's gross tax liability for 2011 is $1,300. She has a $1,500 nonrefundable personal tax credit, a
$750 business tax credit, and a $400 refundable personal tax credit. Her employer withheld $1,000 from
her pay for taxes. What is her net tax due or refund for this year?
149.In 2011, Shawn's AGI is $170,000. He earned the income evenly throughout the year. He owed $24,900
in federal income tax plus alternative minimum tax of $263, and self-employment taxes of $2,590. Last
year, he had a gross tax liability of $50,000. What is the minimum quarterly estimated tax payment
Shawn must pay each quarter to avoid underpayment penalties for 2011?
150.Johann had a gross tax liability of $22,508 in 2011 and $21,000 in 2010, but his employer only withheld
$19,500. Calculate his under/overpayment in each quarter for 2011 tax purposes.
151.Assume Georgianne underpaid her estimated tax liability by $150 in the first quarter, $500 in the second
quarter, $400 in the third quarter, and $200 in the fourth quarter. Calculate her underpayment penalty for
the year, assuming the federal short-term interest rate is five percent.
152.Keith and Nicole are married filing joint with two daughters who qualify as dependents. Their gross
income for 2011 is $20,000. Are they required to file a tax return? How do you know this without
memorizing the gross income thresholds? In 2011, the standard deduction for taxpayers filing a joint
return is $11,600 and the personal exemption is $3,700.
153.During all of 2011, Mr. and Mrs. Clay lived with their four children (all are under the age of 17). They
provided over one-half of the support for each child. Mr. and Mrs. Clay file jointly for 2011. Neither is
blind, and both are under age 65. They reported the following tax-related information for the year:
A. What is the Clays' taxes payable or (refund due) (ignore the alternative minimum tax)?
B. What is the Clays' tentative minimum tax and alternative minimum tax?
ch07 Key
1. FALSE
2. FALSE
3. TRUE
4. FALSE
5. TRUE
6. FALSE
7. FALSE
8. FALSE
9. TRUE
10. TRUE
11. FALSE
12. TRUE
13. FALSE
14. FALSE
15. TRUE
16. FALSE
17. FALSE
18. TRUE
19. TRUE
20. FALSE
21. FALSE
22. TRUE
23. FALSE
24. FALSE
25. FALSE
26. TRUE
27. FALSE
28. TRUE
29. FALSE
30. FALSE
31. TRUE
32. FALSE
33. FALSE
34. TRUE
35. FALSE
36. FALSE
37. TRUE
38. FALSE
39. TRUE
40. FALSE
41. FALSE
42. FALSE
43. TRUE
44. TRUE
45. TRUE
46. TRUE
47. FALSE
48. FALSE
49. FALSE
50. E
51. B
52. A
53. C
54. C
55. B
56. D
57. C
58. B
59. C
60. A
61. C
62. D
63. D
64. B
65. C
66. C
67. C
68. A
69. D
70. A
71. C
72. A
73. B
74. B
75. D
76. A
77. C
78. C
79. D
80. B
81. E
82. A
83. B
84. C
85. C
86. C
87. B
88. C
89. D
90. A
91. D
92. A
93. C
94. B
95. B
96. A
97. A
98. D
99. C
100. A
101. B
102. B
103. B
104. D
105. D
106. C
107. D
108. A
109. D
110. A
111. C
112. C
113. D
114. C
115. E
116. D
117. B
118. E
119. C
120. A
121. B
122. C
123. C
Feedback: $110,016.50+ 35% x ($742,000 - $379,150).
124. $237,014, computed using the single tax rate schedule as follows:
Feedback: $9,500 + 25% x ($130,000 - $69,000).
125. $24,750, computed as follows:
3
2
1
$4,750 + 25% x ($60,000 - $34,500) = $11,125
$4,750 + 25% x ($40,000 - $34,500) = $6,125
$9,500 + 25% x ($100,000 - $69,000) = $17,250
Feedback: Answer computed as follows:
126. No marriage penalty or benefit.
3
2
1
$4,750 + 25% x ($70,000 - $34,500) = $13,625
$850 + 15% x ($10,000 - $8,500) = $1,075
$9,500 + 25% x ($80,000 - $69,000) = $12,250
Feedback: Answer computed as follows:
127. Filing jointly will result in a "marriage benefit" of $2,450.
Feedback: Answer computed as follows:
128. $4,150.
Feedback: Because the kiddie tax only potentially applies when unearned income exceeds $1,900. Here Athena's taxable income is $550 ($1,500
minus $950 standard deduction). Athena is not entitled to an exemption amount because she is Hera's dependent. Athena's tax on $550 of taxable
income is $55 ($550 x 10%).
129. $55.
Feedback: This consists of gross income (and adjusted gross income of $3,300 minus a standard deduction of $2,100 [greater of (1) $950 or (2)
$300 plus $1,800 earned income].
130. $1,200.
Feedback: Answer computed as follows:
131. $130.
Feedback: Answer computed as follows:
132. $1,118.
Feedback: Answer computed as follows:
133. $81,200.
Feedback: Answer computed as follows:
134. $26,010.
Costa's AMT base is $190,000 minus $29,075 exemption [$48,450 - 25% x ($190,000 - 112,500)] = $160,925. Costa's tentative minimum tax
is $41,841 ($160,925 x 26%). Consequently, his alternative minimum tax is $3,841 ($41,841 tentative minimum tax minus $38,000 regular tax
liability).
Feedback: Answer computed as follows:
135. $3,841.
Feedback: ($54,300 x 5.65%).
136. $3,068.
Feedback: Answer computed as follows:
137. $6,284.
Feedback: Answer computed as follows:
138. $2,211.
Feedback: Answer computed as follows:
139. $7,561.
Feedback: Answer computed as follows: $17,300 x 92.35% x 13.3% x 50%.
140. $1,062.
Phase-out is $350, computed as follows:
Feedback: $1,000 - 350 phase-out (see below).
141. $650.
Feedback: Answer computed as follows:
142. $690.
Feedback: Answers computed as follows:
143. $2,250.
Feedback: Answer computed as follows:
144. $560.
Feedback: Answer computed as follows:
145. $2,800.
Feedback: Answer computed as follows:
146. $127.
Earned income credit computation
Feedback: Answer computed as follows:
147. Refund of $1,271.
Feedback: Answer computed as follows:
148. Refund of $1,400.
Feedback: Answer computed as follows:
149. $6,245.
Feedback: Answer computed as follows:
150. Underwithheld by $189, $379, $568, and $757 in the 1st, 2nd, 3rd, and 4th quarters, respectively.
Feedback: Answer computed as follows:
151. $25 ($3 + $10 + $8 + $4).
Feedback: This is apparent knowing only the standard deduction and personal exemption amounts. Their gross income of $20,000 is greater than
the standard deduction for married filing a joint return ($11,600) and two personal exemptions ($3,700 x 2)the sum of these ($19,000) is the
threshold. The fact that they have two children does not affect the gross income threshold amount.
152. Yes, Keith and Nicole are required to file.
Feedback: Answer computed as follows:
B. Tentative minimum tax is $6,513; AMT is $0 (regular tax liability > tentative minimum tax liability).
Child tax credit phase-out is $250, computed as follows:
Feedback: Answer computed as follows:
153. A. Tax refund is $1,175.
ch07 Summary
Category
# of Questions
AACSB: Analytic
60
AACSB: Reflective thinking
93
AICPA: BB Critical Thinking
153
Blooms: Analyze
61
Blooms: Knowledge
92
Learning Objective: 07-01 Determine a taxpayers regular tax liability and identify tax issues associated with the process.
36
Learning Objective: 0723
02 Compute a taxpayers alternative minimum tax liability and describe the tax characteristics of taxpayers most likely to owe the al
ternative minimum tax.
Learning Objective: 07-03 Calculate a taxpayers employment and self25
employment taxes payable and explain tax considerations relating to whether a taxpayer is considered to be an employee or a selfemployed independent contractor.
Learning Objective: 0745
04 Describe the different general types of tax credits; identify specific tax credits; and compute a taxpayers allowable child tax cre
dit; child and dependent care credit; American opportunity credit; lifetime learning credit; and earned income credit.
Learning Objective: 0724
05 Explain taxpayer filing and tax payment requirements and describe in general terms how to compute a taxpayers underpayment;
late filing; and late payment penalties.
Level of Difficulty: Easy
66
Level of Difficulty: Hard
11
Level of Difficulty: Medium
76
Spilker - Chapter 07
153